Aviation Finance & Leasing 2024 Comparisons

The mere execution of an aircraft/sale agreement in Egypt does not entail the payment of taxes.

Whether a sale agreement needs to be certified, notarised or legalised to be enforceable depends on the asset subject to sale. Such an agreement is also subject to the governing law and dispute resolution mechanism. Under an aircraft sale agreement regarding an Egyptian registered aircraft, the bill of sale is required to be:

• filed with the Egyptian Civil Aviation Authority ECAA); or
• deposited with the ECAA after having been notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance, to reflect the new owner.

As to engines, such requirement does not exist unless the agreement will be presented to an Egyptian court. It is advisable, however, for the bill of sale pertaining to an engine that is installed on an Egyptian registered aircraft/aircraft maintained or operated in Egypt to be notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance and kept on file (i) until the Cape Town Convention is fully implemented to allow for engine registration and (ii) in the event there is a dispute adjudicated in Egypt that involves said engine. Moreover, if the agreement is subject to a foreign law and adjudicated outside of Egypt then it is not required to be translated. Please see 1.2.1 Transferring Title and 2.1.1 Non-permissible Leases.

Egyptian law allows documents in the English language to be filed as is, without translation into Arabic. This aviation industry-specific law is considered unique.

The transfer of title to an aircraft registered in Egypt must be done through (i) the filing of the sale agreement or the bill of sale with the ECAA, or (ii) depositing the bill of sale with the ECAA after having it notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance.

As to an engine, in the absence of a regime specifically governing engines as opposed to aircraft, the transfer of title of an engine would follow the conventional procedures prescribed under Egyptian law. There are no perfection procedures prescribed for the sale of an engine. Please see 2.1.1 Non-permissible Leases. The same applies to auxiliary power units and other installed parts.

The sale of the ownership interest in an entity owning an aircraft or engine does not have an impact on that aircraft or engine. However, if the owner of an aircraft is changed, that transfer of title must be reflected in the ECAA relevant registries. As to engines, please see 2.1.1 Non-permissible Leases. 

The transfer of title to an aircraft or engine physically delivered in Egypt would be recognised if the bill of sale is governed by English or New York law assuming it is valid under the governing law.

Minimum substantive requirements for a sale to take place in Egypt include the transfer of title to the buyer for a consideration and that the description of the sold item is clearly identified.

The above applies to aircraft bills of sale that are registered in Egypt in addition to either the said bill of sale needing to be filed for a filing fee or a notarised and legalised certified true copy needing to be deposited with the ECAA.

Please see response to section 1.2.2 Sales Governed by English or New York Law, 2.3.4 Registration of Leases With the Domestic Aircraft Registry and 2.3.5 Requirements for a Lease to Be Valid and Registrable.

The bill of sale shall be either filed against a filing fee or a notarised and legalised certified true copy should be deposited with the ECAA.

An application should be submitted to the ECAA. The document will be reviewed by the ECAA prior to filing. There is no specific timeframe for this and the process differs depending on whether the aircraft is new or used.

There are no government consents required.

If the seller does not have a permanent establishment and the sale is not considered as part of its commercial activities, then no taxes should arise as a result of the sale. Otherwise, if the seller is based in Egypt, there could be tax implications.

The ECAA filing fees are EGP35,000.

There are no specific restrictions on types of operating/wet/finance leases or leases concerning only engines or parts.

To date, any transactions related to engines or spare parts that are treated separately from an aircraft are not filed with the ECAA.

The Egyptian Registry held by the ECAA is aircraft based and the ECAA acts as the competent notarial office for all transactions related to aircraft.

A lease involving either a domestic party or an asset situated in Egypt may be governed by a foreign law provided that such law does not contravene or violate Egyptian public order.

There are no material restrictions that are imposed on domestic lessees making rent payments in US dollars.

In practice and due to a shortage of foreign currency, payment in foreign currency by domestic lessees may prove to be somewhat difficult and time consuming.

There are no exchange controls that could prevent rent payments under a lease or repatriation of proceeds. However, Egyptian banks require evidence for such payment, such as a contractual arrangement or an invoice.

To file a lease, there is a government fee of EGP35,000 although certain government operators are exempt from these fees.

Physical presence is required through valid powers of attorney to file the lease before the ECAA.

Since 2016, the ECAA has only required the amount of EGP35,000 for the entire package of documentation (excluding mortgages and bills of sale) if the registration of such documents is made on the same day.

A lessor does not have to be licensed or qualified to do business in Egypt with a domestic lessee.

There are certain mandatory terms that are required to be in a lease such as the term of the lease, rental value, aircraft registration marks and manufacturer’s serial number, the type of aircraft, the number of engines and their manufacturer’s serial number, the date of manufacture and the name and address of the manufacturer, together with subleasing, insurance, applicable law and jurisdiction clauses.

There are also certain mandatory provisions that are not commonly seen in English or New York law leases, such as that the subleasing provisions must include the name of the sublessee and the duration of such sublease.

Tax and other withholding gross-up provisions are permissible and enforceable.

A lease can cover parts that are installed or replaced on an aircraft or engine after its execution.

For an aircraft lease that is filed with the ECAA, any significant changes must be reflected in an addendum/amendment/annex that is to be filed with the ECAA for perfection purposes.

For an engine, please see 2.1.1 Non-permissible Leases.

There is a risk of title annexation of aircraft engines installed on an airframe since the Egyptian Register is aircraft based.

To mitigate such risk, an agreement could be entered onto the Register with the relevant parties recognising the right, title, and interest of the owner/lessor of an engine. Accordingly, such agreement may grant some protection by confirming that the engine is not part of the aircraft. Such an agreement could also include a bill of sale evidencing engine title both of which shall be notarised and legalised as original/certified true copies of same up to the level of the Egyptian Embassy/Consulate at the country of issuance.

The concept of trust is not recognised in Egypt. Accordingly, an owner trustee is treated as owner prima facie pursuant to the bill of sale.

The interests of the owner or a lessor of an aircraft are noted in the Aircraft Register held by the ECAA.

All documents related to aircraft are registered with the ECAA.

It is necessary and desirable to ensure the priority, validity and enforceability of the obligations of the Egyptian lessee under a relevant document – such as a lease, a conventional deregistration power of attorney (DPOA), a security assignment and an irrevocable de-registration and export request authorisation (IDERA) – for that document to be notarised, filed, registered and recorded with the ECAA.

The certificate of registration of an aircraft specifies the name of the aircraft owner as an owner and the Egyptian lessee/operator as the holder of the aircraft.

There is a specific register for leases concerning aircraft only. There is no engine register.

To date, any transactions related to engines or spare parts, which are treated separately from an aircraft, have not been filed with the ECAA due to legislative restrictions. The Aircraft Registry is aircraft based.

The ECAA acts as the competent notarial office for all transactions related to aircraft.

It is envisaged that the relevant Egyptian laws may be amended to accommodate transactions, such as sale, lease or mortgages over engines to be filed with the ECAA.

Aircraft lease agreements must be registered with the ECAA. While leases are not subject to the consent of any government entity, the ECAA reviews the said leases before filing to provide its sign-off. Also, the respective aircraft is inspected by the ECAA for compliance with applicable Egyptian laws and regulations. Moreover, the filing process involves the physical presence of the relevant ECAA officers to validate the lease filing process, along with the representatives of the signatory parties.

Registration Formalities

In general, any document that will be submitted to an Egyptian authority or court of law for purposes of filing, registering, or enforcing same, must be translated into Arabic. Such translation may be done by the translation department of the Ministry of Justice or by the translation department in the Ministry of Foreign Affairs. In particular, any documents that will be submitted for notarisation, filing, registration or enforcement before the ECAA must be either in English or Arabic, but if they are in any other language, then they must be translated into English or Arabic.

In general, where documents are required to be notarised for use, if notarised by a notary outside of Egypt, the document then needs to be legalised up to the level of the Egyptian Consulate/Embassy in the relevant country, which shall be followed by the authentication thereof by an Egyptian Foreign Ministry office in Cairo. This does not apply to leases since they must be filed with the ECAA.

Egypt has not ratified the Hague Convention of 1961 Abolishing the Requirement of Legalisation for Public Documents.

Egyptian law and regulations further provide an alternative to the above. Parties to a certain transaction could, by virtue of powers of attorney, appoint attorneys to represent them before the ECAA. Said powers of attorney will require notarisation and legalisation up to the level of the Egyptian Consulate in the country of issuance to be followed by authentication by an Egyptian Foreign Ministry office in Cairo.

Prerequisites to Execution/Delivery of a Lease

As a matter of practice, the operator/lessee submits the following:

• an application reserving the registration marks of an aircraft for a fee of EGP10,000; and
• an application for the registration of the aircraft in the Aircraft Register for a fee of EGP25,000.

The lessee or the owner representative may submit the applications for the registration of the relevant lease and any accompanying documents. Government fees depend on what the requirements are, as they may vary.

As a prerequisite to filing any aircraft lease agreement (but not an engine lease agreement), the lessee or the owner must provide a notarised and legalised certified true copy (or original) bill of sale of the aircraft up to the level of the Egyptian Consulate/Embassy in the country of issuance or have the bill of sale filed with the ECAA.

See 2.3.4 Registration of Leases With the Domestic Aircraft Registry. In practice, the ECAA sometimes requests an Arabic translation, even of English documents, for guidance.

See 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease.

Aircraft that are habitually based in Egypt are typically registered. Anything to the contrary is dealt with on a case-by-case basis and subject to the approval of the Ministry of Civil Aviation.

See 2.3.4 Registration of Leases With the Domestic Aircraft Registry and 2.3.5 Requirements for a Lease to Be Valid and Registrable.

The ECAA reviews any document before having it filed with the ECAA.

For any document to be admissible, it must be either (i) filed with the ECAA or (ii) deposited with the ECAA after having been notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance. However, the mere depositing of a document does not grant perfection, rights, priority, or ranking of a document. Therefore, it is recommended to file documents with the ECAA.

A foreign lessor will not be required to pay income or capital gains or other taxes upon leasing an aircraft or engine to a domestic lessee. The Egyptian lessee, however, is required by law to withhold certain amounts as a withholding tax, which shall be subject to Egyptian tax law and/or any applicable double taxation treaty.

A foreign lessor should not be deemed to be resident, domiciled, carrying on business or subject to any taxes as a result of its being a party to, or its enforcement of, a lease.

There are no liabilities in respect of aircraft or engine maintenance and operations that are imposed on a foreign lessor under a lease. However, if the Egyptian lessee does not make the necessary amounts due to the maintenance provider for example, the said maintenance provider may put and exercise a maintenance lien. In a repossession and deregistration event, the foreign lessor may be put in a situation whereby it has to make such payments to enable it to repossess and deregister the aircraft.

A foreign aircraft or engine owner or lessor under a lease, or a financier financing the asset on lease, shall not be liable under the doctrine of strict liability because of damage or a loss caused by the asset.

Creditors of a domestic lessee could attach an aircraft leased to that lessee but owned by a different entity. The owner in this case would need to provide evidence to court of its ownership of the aircraft. A bill of sale that is notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance would be sufficient proof to exclude such aircraft from being part of the lessee’s assets.

Under Egyptian law, the rights of a lessor will rank equally with other creditors of the same ranking but will have priority in all respects over the claims of all unsecured creditors of the lessee if the lease agreement is registered with the ECAA except for certain sovereign and preferred debts. What constitutes sovereign or preferred debts includes the amounts due to the public treasury (eg, judicial expenses), which are followed by taxes, other rights (such as secured debts), maintenance liens and employees’ rights for the past six months, in that order.

It is mandatory under Egyptian law that all insurances over property be placed with domestic insurance companies.

There is no minimum requirement for insurance. However, industry norms are followed.

Reinsurances can be placed outside of Egypt with foreign reinsurers.

Cut-through clauses are enforceable.

Assignments of insurances and reinsurances are permitted under Egyptian law. It is also advisable to perfect said assignments as per Egyptian laws and regulations for the benefit of the beneficiaries thereunder.

There are no restrictions for a lessor to terminate an aircraft lease. Such terms are subject to the terms of the lease itself, so if the lease restricts such termination, then such restrictions shall be complied with.

There are no restrictions on the lessor re-exporting the aircraft. However, an export certificate of airworthiness needs to be obtained from the ECAA.

There are no restrictions on the lessor selling the aircraft following termination, but it is important to note that the aircraft in this case shall be deregistered from Egyptian Register as a lease termination is considered a reason for deregistration under Egyptian law.

The aircraft does not need to be physically located in Egypt at the time of any of the above actions taking place.

Self-help remedies are not valid.

A lessor can use the filed DPOA to repossess, deregister and export an aircraft. A lessor can use a Cape Town Convention IDERA to repossess, deregister and export an aircraft.

If a DPOA or IDERA is not used or its use was unsuccessful, then a court order will be needed – especially if the lessee is contesting the repossession of the aircraft. 

There are no specific courts that are competent to decide on aviation disputes. Nevertheless, if there is a dispute with a government authority or body, it shall be adjudicated before the State Council.

A lessor can obtain a summary judgment or other injunctive relief. However, in practice, injunctions are rarely issued and are often challenged by the other party. There are no special requirements or conditions. If such a court order is rendered, it is usually for a short period of time.

Domestic courts would uphold:

• foreign law as the governing law of an aircraft lease;
• the submission to a foreign jurisdiction; and
• a waiver of immunity by the parties of such a lease, provided that if the party issuing the waiver of immunity is a government authority or body, consent for such waiver of immunity shall be provided.

Enforcing Foreign Judgments in Egypt

To enforce a foreign judgment a party must obtain an exequatur. To apply for an exequatur the normal procedures for initiating a lawsuit must be satisfied and the following conditions must be met:

• Reciprocity – the country in which the judgment was obtained (the “foreign court”) enforces judgments obtained in the courts of Egypt. If such reciprocal treatment is not offered by the foreign court, the Egyptian courts will re-examine the merits of the case in the same manner as that adopted by the foreign court.
• Competence of the foreign court rendering the judgment – the courts of Egypt are not exclusively competent to hear the dispute which constituted the object of the foreign judgment and the foreign court is shown to have been competent to hear the dispute in accordance with the laws applicable to it.
• Due process – the parties to the dispute were duly notified and properly represented in the proceedings (ie, not in contravention of the rules of natural justice). Thus, Egyptian courts will not recognise an English default judgment and a full trial must have been conducted.
• Final judgment – the judgment of the foreign court is final, non-appealable and conclusive in accordance with the relevant law.
• Conflict – the judgment of the foreign court does not conflict with a prior Egyptian judgment on the same subject matter and is not contrary to public order.

The authors are not aware of any treaty between Egypt and the United Kingdom or the United States or of an Egyptian court decision which was enforced by the courts of the United Kingdom or the United States, which in either such case would satisfy the criteria set forth in the first point in the list above. In practice, reciprocity is very difficult to prove and, consequently, the enforceability of a foreign judgment issued by jurisdictions that do not have treaties with Egypt, is doubtful.

The New York Convention

Egypt is a signatory to the New York Convention of 1958 On the Recognition and Enforcement of Foreign Arbitral Awards. Moreover, pursuant to the Egyptian Arbitration Law, international arbitration awards are enforceable and therefore any arbitral awards rendered would be enforced subject to paragraph 5(d) of the Egyptian Arbitration Law. The following documents must accompany the application for enforcement:

• the original award or a signed copy;
• a copy of the arbitral agreement;
• an Arabic translation of the award, authenticated by the competent authority if the award was not issued in Arabic;
• a copy of the minutes evidencing the deposit of the award with the competent court (usually the Cairo High Court of Appeals); and
• a copy of the notification of the award to the party against whom the award has been made.

However, Egyptian law provides for an annulment procedure of arbitral awards in specific exceptional cases.

Egyptian courts may, at their discretion, render judgments for a monetary amount in a currency other than Egyptian pounds if they consider that it is the currency which most fairly expresses the plaintiff’s loss.

There are no limitations on the lessor to recover default interest. However, under Egyptian law, the interest due requiring the payment of default interest cannot exceed 7%, as such transaction is considered to be a commercial one. Any agreement to the contrary may be deemed void.

A lessor under an aircraft lease is not required to pay taxes for the enforcement of a lease. However, there are other associated fees that could be incurred such as legal fees, experts’ fees or related deregistration fees. This is in addition to other minimal court charges that are assessed depending on the claim.

There are no mandatory notice periods; accordingly, such notice periods are subject to the lease agreement.

Lessees are not entitled to sovereign immunity. However, adding clauses that waive immunity is common practice.

Assuming that the lessee is not a governmental authority and pursuant to the provisions of the Civil Code and the Commercial Code, the lessee would not be entitled to any right of immunity on the grounds of sovereign immunity.

Please see 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

For enforcement, arbitration is recommended as the dispute resolution mechanism. As to foreign courts, it is advisable only to use courts in jurisdictions where there is a reciprocal enforcement of judgments treaty with Egypt.

Arbitration If the Lessee Is Owned by the Egyptian Government or an Organ Thereof

Pursuant to a Prime Ministerial Decree, it is not permissible for any Egyptian administrative bodies, including ministries, public bodies, government agencies, and their affiliated bodies; or companies affiliated with the state, or to which the state contributes in any way, to take the following measures without submitting to the Commission (the High Commission for International Arbitration and Disputes):

• entering into contracts with foreign investors or signing any contracts that include a mandate to resort to international arbitration, or making any modification in these contracts, or taking any action that involves terminating those contracts; or
• taking any remedy or procedure in relation to arbitration.

Egypt recognises the concepts of both contractual assignment and novation.

Both English and New York law assignments and novations would be held valid. It is recommended that perfection of such rights under Egyptian law is to be taken into consideration.

There is no need for an aircraft and/or engine lease assignment and novation to be translated unless presented to an Egyptian court. It is recommended that perfection of such rights under Egyptian law is to be taken into consideration and reflected in such documents. Please see 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

An engine lease novation or assignment cannot be filed as previously explained.

An aircraft lease assignment and novation shall be registered or filed with the ECAA.

The formalities for such action follow the same formalities reflected in the answers to section 2.3.4 Registration of Leases With the Domestic Aircraft Registry.

There are no governmental consents but an application to file the same must be filed with the ECAA.

The ECAA must review said documents before filing.

Engines’ related documents do not get filed with the ECAA so there is no obligation to file them anywhere.

Nevertheless, it is envisaged that the relevant Egyptian laws may be amended to accommodate transactions, such as filing of sales, leases or mortgages over engines with the ECAA.

Please see 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease as the same process applies.

There is no impact on the filing process before the ECAA if the ownership interest of an entity owning an aircraft is transferred with the legal title to the asset remaining with that entity.

If the aircraft ownership is transferred to another owner, then the ECAA will require evidence of transfer of title through a notarised and legalised bill of sale up to the level of the Egyptian Consulate/Embassy in the country of issuance or filing of the bill of sale with the ECAA. It will also be obligatory to file a lease amendment or novation to reflect such change. Accordingly, the aircraft registration certificate will need to be changed.

A beneficiary, such as a security trustee or owner can deregister an aircraft under a DPOA or IDERA if such DPOA or IDERA is registered with the ECAA.

An application is submitted to the ECAA with a copy of the filed DPOA or is presented to the ECAA along with a copy of the notice of default and the grounding notice as evidence for lease termination. The ECAA reviews same and contacts all relevant parties.

In the event of a mutually consented termination, an early termination agreement needs to be filed with the ECAA. The same process identified in 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease must be followed.

An aircraft owner, mortgagee or lessor may apply for the deregistration of the aircraft without the lessee’s consent.

In practice, the ECAA informs the lessee with the deregistration request and requests comments from the lessee or operator prior to taking any deregistration actions. Customarily, the ECAA contacts Egyptian state-owned companies and authorities in the aviation industry to verify if the lessee has any outstanding dues. If the lessee is a solid one with no outstanding debts and has various aircraft in its fleet, the process is simple and deregistration may follow promptly. If not, then the ECAA may require the payment of all outstanding dues to state-owned companies and the process may be extended. 

An original copy of the filed DPOA or IDERA is presented to the ECAA along with a copy of the notice of default and the grounding notice as evidence for lease termination. Any additional documentation evidencing the lessee or operator default should be submitted as well.

In addition, the ECAA will require from the aircraft owner, mortgagee or lessor evidence of representation by lessor representative in the form of a power of attorney to be presented.

If the lessee does not challenge the deregistration or if the reasons for deregistration are clear and free from doubts, deregistration may be effected within three weeks. Otherwise, the ECAA may request submission of a final judgment, settlement or evidence of default (such as default notices or grounding notices) to deregister the aircraft. It should be noted that, as a practical matter, deregistration usually exceeds the three-week period and submission of settlements/judgments/evidence of default may be required.

It is highly unlikely that the ECAA would provide advance assurances to an aircraft owner, mortgagee or lessor as to the prompt deregistration of the aircraft. However, such assurances have been granted on rare occasions as per the Minister of Aviation’s approval to certain publicly owned operators to conclude export credit agency-backed financing.

The government costs associated with deregistration are minimal.

A DPOA must be filed with the ECAA to protect the rights of the beneficiary thereof.

The formalities are the same as reflected for leases, assignments and novations as reflected in 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease.

A DPOA does not need to be translated.

Please see 2.8.3 Required Documentation.

A DPOA does not have to be governed by Egyptian laws.

If the DPOA was irrevocable, it would be enforceable against the lessee. In principle, the irrevocable power of attorney is not subject to revocation solely by the lessee. However, in the case of a dispute, the lessee may seek a court judgment revoking the same but such a ruling is difficult to obtain.

An aircraft owner, mortgagee or lessor may export the aircraft without the lessee’s consent through a DPOA or IDERA that includes a proxy and authorisation to export the aircraft.

Self-remedy measures are not permissible.

There are no additional actions that can be done by the lessor, owner or mortgagor at the time of lease negotiations to ensure that the aircraft is exported promptly except for the obtaining of a DPOA and IDERA (please see 2.10 Cape Town Convention and Others).

Enforcement of a mortgage must comply with Egyptian law, which obliges the enforcer to sell the aircraft through a public auction administered through the court.

The aircraft does not need to be located in Egypt at the time of deregistration.

Aircraft export permits/licences are issued.

An export permit/licence request/application has a limited validity period. If the aircraft is not exported within such period, a new licence must be obtained. It is also important to note that if there are any outstanding charges against the aircraft to Egyptian state-owned companies in the aviation industry, the aircraft may not be issued an export licence.

An export permit/licence cannot be granted in advance.

The costs with respect to the export of an aircraft are minimal. The fees of agents on the ground may need to be considered.

Deregistration of aircraft is not a smooth process, especially if the lessee is not consenting. Moreover, if the solvency status of the lessee is in question, further hurdles may be put in place since deregistration may be stopped or at least delayed for state creditors to collect their outstanding debt as a prerequisite to deregistration. A recent hurdle experienced was that the ECAA does not allow for the grounding of an aircraft despite that the ECAA honors the filed IDERA or DPOA. So, the aircraft would continue operation up until the deregistration is imminent.

The bankruptcy regime has been largely consistent since 1999, following the advent of the Commercial Code. It recognises bankruptcies, insolvencies and liquidations.

In 2018, however, the bankruptcy regime introduced a new section on restructuring and reorganisation. This section provides for restructuring through putting in place a plan to reorganise a trader’s financial and administrative business, the means to recover from a state of financial and administrative distress, a scheme to pay off its debts and the proposed sources of funding. This can be done in several ways, including the re-evaluation of assets, debt restructuring, including state debt, capital increase, increased internal cash flow, and reduction of external cash flow.

The term “trader” is defined in the Commercial Code as “whoever exercises by way of profession in its name or for its account a commercial activity”. Such definition also includes all companies formed under the companies’ laws regardless of the purpose of their establishment.

A trader shall be considered in a state of bankruptcy, as declared through a court order, if it stops paying its commercial debts following distress in its financial condition (ie, becomes unable to pay) . The law does not specify what could be deemed as instability of a company leading to financial distress. Therefore, the court reviews all the circumstances surrounding the debtor prior to issuing its judgment, taking into consideration the debtor’s future resources, the debtor’s responsibility in causing such distress, and the creditors’ interests.

The rules of bankruptcy are that the debt must be current, undisputable, and due. Also, there should be evidence that the debtor is unable to pay such debt due to its distressed financial position.

The law further stipulates that a company is considered in a state of bankruptcy if it stops paying its debts due to its financial distress. There is a specific time-period with respect to establishing whether a company should file for bankruptcy, which shall be within 15 days from the date it stopped paying its debts as a result of disruption in its financial position.

The trader is declared bankrupt at its own request, the request of one of its creditors or that of the Public Prosecutor.

Where a company’s loss reaches 50% of its issued capital, an extraordinary general assembly of the company shall convene to look into the dissolution or continuation of the company.

A lessee may be liquidated by (i) its dissolution, (ii) the lapse of its term under its by-laws, and (iii) the completion of its company objective. The liquidator is either appointed by the company’s shareholders or by virtue of a court order.

The co-ordination, recognition or relief in connection with oversees proceedings is done on a case-by-case basis.

There are certain arrangements or treaties on a bilateral, regional or international level whereby the relevant Egyptian authorities, such as the Ministry of Justice, the Public Prosecutor and the Central Bank of Egypt co-ordinate with their foreign counterparts.

As to enforcement of court judgments and arbitral awards please see 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

In general, the courts will recognise a DPOA provided that it is duly registered and notarised.

There is a suspect period to be determined by the court, but in any event, it may not be traced back to more than two years from the date the bankruptcy judgment is issued. In that regard, the law provides that any transaction conducted during the suspect period under a bankruptcy scenario may be nullified if it is evidenced that it was conducted against the interests of the creditors and that the other party was aware of the financial status of the bankrupt entity acting in bad faith.

Under a liquidation scenario, it is presumed that the appointed liquidator should adhere to all obligations assumed before the liquidation process up until liquidation is concluded.

If the lease calls for termination of the contract in the event of bankruptcy, then such a provision would be respected by Egyptian courts and the bankruptcy trustee would be bound thereby. However, if the contract is silent on termination for bankruptcy, then pursuant to Egyptian law, the bankruptcy judgment does not require the termination of a binding contract to which the bankrupt is a party, unless such contract is based on personal considerations. The law further provides that if the bankruptcy trustee does not perform or does not continue the performance of the contract, the other party to the contract may request the termination of the contract, and that any decision taken by the bankruptcy trustee with regards to the contract must first be presented to the bankruptcy judge for their approval.

The lessor may be delayed or prevented from repossessing the aircraft.

The aircraft may be deemed part of the lessee’s property. In this case the aircraft owner would be entitled by law to repossess the aircraft without the need to have a mortgage thereon if the Lessor can prove ownership thereof. Accordingly, the aircraft owner would need to provide evidence to the court and bankruptcy trustee evidencing its ownership of the aircraft. A bill of sale that is notarised and legalised up to the level of the Egyptian Embassy/Consulate in the country of issuance may be sufficient evidence for the judge to exclude it from the bankruptcy process. The lessor would also need to request the court/bankruptcy trustee to set aside the aircraft from any proceedings and allow its repossession. The bankruptcy law further stipulates that the bankruptcy trustee, after consulting the bankruptcy controller and obtaining a permission from the bankruptcy judge, may return the aircraft to its owner. If such repossession has been rejected, the party (owner) requesting it may bring a dispute before the court.

The bankruptcy trustee may impose the rights of any other creditors in priority to the lessor.

If the security provided is not perfected, then the security is at risk as other secured or unsecured creditors may also be able to claim.

There is a moratorium imposed in connection with bankruptcy proceedings, which excludes certain matters such as criminal claims. Under Egyptian law, there is no fixed moratorium period. However, said moratorium commences on the date on which the bankruptcy judgment is rendered and continues until the decision to conclude the bankruptcy is rendered.

An Egyptian company may be voluntarily or involuntarily liquidated or made bankrupt.

A provision in an agreement creating a default for specific reasons – such as insolvency or reorganisation and restructuring – and thereby permitting the lessor to terminate the leasing of the asset, is permissible.

If the lessee is wound up by a court or administration proceeding, there is a suspect period as stipulated in 2.9.4 Effect of Lessee’s Insolvency on a Deregistration Power of Attorney. In that regard, the law provides that any transaction conducted during the suspect period under a bankruptcy scenario may be nullified if it is evidenced that it is conducted against the interests of the creditors and that the other party was aware of the financial status of the bankrupt entity. Accordingly, for the lease rentals, the lease security deposit and maintenance reserves may be ordered by the court to the liquidator or bankruptcy control if such payments would be deemed void by the bankruptcy judge if said judge is of the view that such transactions were made to the detriment of third parties.

As to the aircraft, please see 2.9.5 Other Effects of a Lessee’s Insolvency (second and third paragraphs).

Egypt ratified the Cape Town Convention and the Aircraft Protocol, and both came into force on 1 April 2015. However, neither instrument has yet been fully implemented by Egyptian authorities. Accordingly, the ECAA is not yet involved in the registration of international interests and this process is left to the lessor and lessee.

Originally, Egypt made declarations only under Articles 39(1)(a), 40 and 54(2) of the Cape Town Convention with no declarations relevant to the Aircraft Protocol.

Recently, Egypt has made new declarations whereby Egypt has notified UNIDROIT on 7 November 2019 of subsequent declarations under Articles 39(1)(a), 53 and 54(2) of the Cape Town Convention and Articles XIX, XXX(1), XXX(2) and XXX(3) of the Aircraft Protocol. These subsequent declarations came into effect on 1 June 2020.

Egypt has made the relevant declaration to apply IDERA.

Historically, the ECAA began approving the registration of IDERA provided the inclusion of the following qualification:

“We acknowledge that the provisions in the Cape Town Convention and the Protocol to the Convention on International Interest in Mobile Equipment on Matters specific to Aircraft Equipment relating to recognition of Irrevocable Deregistration and Export Request Authorisations have not yet entered into effect in the Arab Republic of Egypt. The Egyptian Civil Aviation Authority shall recognise this instrument once the relevant provisions are effective in the Arab Republic of Egypt”.

Currently, the ECAA approves filing the IDERA without the above qualification and there is precedence evidencing the deregistration, repossession and export of an aircraft using IDERA.

There was no court precedent in relation to parties enforcing the Convention or the Protocol until 2022. It is unclear yet how Egypt will enforce them or when.

In 2022, various cases were filed before the State Council regarding repossession. While all matters were settled out of court, it was apparent that such courts have no experience or knowledge of the Cape Town Convention and Protocol.

Egypt is a party to the 1948 Geneva Convention on the International Recognition of Rights in Aircraft.

Egypt is a party to the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.

There are no restrictions on foreign lenders financing an aircraft locally or on borrowers using the loan proceeds.

Please see response to section 2.1.4 Exchange Controls.

Borrowers are permitted to grant security to foreign lenders. There may be some restrictions regarding real estate security provided to foreign lenders.

Guarantees are acceptable forms of collateral. This includes clauses governing the explicit waiver of certain rights by the guarantors and dispute resolution mechanisms.

There is no legal regime that governs the perfection of guarantees.

Special purpose vehicles are incorporated in foreign jurisdictions. It is common for lenders to have share security over such vehicles. A share pledge is recognised and can be perfected and the method of perfection depends on the type of entity in question.

A negative pledge is recognised.

There are no restrictions or requirements imposed on intercreditor arrangements.

The concept of agency and the role of an agent under a syndicated loan is recognisable .

Debt subordinations are permissible and recognised. However, there is no legal regime that governs same except for the priority ranking of secured assets, which also depends on the type of security and whether such security can be perfected.

The transfer or assignment of all or part of an outstanding debt under an English or New York law-governed loan is permissible and recognised. Perfection of such transfer or assignment may be required for Egyptian law purposes.

There are certain interest limitations:

• Interest cannot exceed 7% if such transaction is considered a commercial transaction – any agreement to the contrary may be deemed void.
• Under an aircraft mortgage, the interest due on the loan secured by a mortgage cannot exceed 12% – any agreement to the contrary may be deemed void.
• Under banking transactions such as loans, the interest is calculated as per market norms.

Mortgages, account pledges, share pledges, assignments of rights, assignments of insurances and reinsurances, guarantees, bank cheques, IDERA, DPOA, and letters of credit are the typical forms of security in an aviation finance transaction.

There are no specific types of security that cannot be taken over an aircraft so long as they do not contravene Egyptian public order.

The concept of the trust is not recognised in Egypt.

The role of a security trustee acting on behalf of the lenders as a security agent in a transaction is, however, recognisable.

A borrower can assign to a security trustee, pursuant to a security assignment/assignment of insurances or under an aircraft lease or mortgage, its rights in the aircraft.

It is possible to assign the rights and benefits only without also assigning the attendant obligations of the lessor under an aircraft lease.

A security assignment or a guarantee can be governed by English or New York law.

If there are any assignments of rights, the registration of such assignments must be registered for them to be valid vis-à-vis third parties. As per Egyptian law, for an assignment of rights to be effective against third parties, the assignment must have an “established date”, which can take place either before an Egyptian notary (the ECAA for aircraft-related transactions) or through service of a formal notice through a court bailiff. Failure to do so may risk losing the priority of the assignment.

If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered domestically, other security instruments available to a financier include mortgages, share pledges, mortgages over other assets, guarantees, DPOA, IDERA, or account pledges. For filing fees, please see 2.1.5 Taxes/Duties Payable for Physical Execution of a Lease and 2.3.6 Taxes/Duties Payable for Registering a Lease.

To date there are no Cape Town filings made through the ECAA.

An English or New York law-governed security assignment or a domestic law security instrument may be registered domestically.

The transfer of security interests over an aircraft and/or engines is recognised.

If the identity of the secured parties under a security assignment changes after its execution, then such changes may need to be reflected in the underlying security documents.

If the security trustee or agent changes, such change shall be reflected and filed, if such security was filed.

A parallel debt concept has not been tested. Accordingly, it is not possible to say how an Egyptian court or tax authorities would respond to it.

A secured party under a security assignment will not be deemed to be resident, domiciled, or carrying on business as result of enforcing such assignment.

A domestic law mortgage over an aircraft is perfected through filing it with the ECAA. Enforcement thereon shall follow Egyptian law.

To perfect a mortgage over an engine under Egyptian law, the engine must be either in the possession of a trustee or a creditor. Since the possession by the creditor cannot be perceived and is impractical, the engine mortgage agreement would include a trustee, having the trustee as a party thereto. Usually, the trustee is an affiliate to the lessee to simplify the possession process.

There are various differences between the perfection process taken over an aircraft when compared to engines.

To date, the regime governing security over engines is not under the auspices of the ECAA (unlike aircraft) and so security over engines is treated differently – eg, a mortgage over an engine requires the appointment of a trustee or the engine being kept with the creditor. The charges to perfect a mortgage over an engine are minimal.

For an aircraft mortgage to be filed with the ECAA involves a charge of EGP135,000.

Security over bank accounts is recognisable.

For perfection, the bank account pledge over an account held locally is filed with the Egyptian Collateral Registry.

A third party can register a lien over an aircraft or engine. Nevertheless, this must be done through a court order. In practice, such third party detains the aircraft or engine without a court order as leverage for payment or settlement of the outstanding dues.

A lien should cover only the work done on the asset in question.

A fleet lien may not be exercised.

There is no mandatory timeframe to discharge a lien or mortgage. Nevertheless, an Egyptian registered aircraft mortgage needs to be renewed every ten years.

There is no specific mortgage register. Mortgages are reflected in what is called the “Aircraft Register” and the mortgage is filed in what is called the “Documents Register”.

Registration of a mortgage gives a priority and will ensure continuous perfection. A registered mortgage affords the mortgagee preference over all subsequent registered secured debts, regardless of the dates on which such debts were created, as well as all unsecured debts.

Statutory rights of detention or non-consensual preferential liens arise over an aircraft but not on a fleet-wide basis.

A potential purchaser of an aircraft will not be able to verify that an aircraft is free of encumbrances as the Aircraft Register is not publicly accessible. The only method of verification is through an application by the owner, lessor, lessee or mortgagee.

There are certain relevant differences in enforcing a security as opposed to a loan or a guarantee.

The security assignment can be perfected through filing with the ECAA while neither loans nor guarantees are perfected with any.

The priority under a security assignment can be maintained while under a guarantee or loan there are no priorities since they are not filed anywhere unless the loan is secured with collateral over certain assets that are perfected.

If enforcement is pursued under a loan or a guarantee, it will only require the payment of certain amounts that have to be rendered after obtaining a court order or an arbitral award, while under a security assignment, the debtor should be paying the necessary amounts to the assignee (unless the assignor revokes its instructions and the debtor abides by such new instructions).

If, under a security assignment, security is granted to a security trustee by a lessor in respect of its rights under an aircraft lease, the security trustee can enforce its rights under the security assignment pursuant only to a notice and acknowledgement, executed by that lessor and the relevant lessee respectively, provided that the assignment is perfected pursuant to the relevant Egyptian laws through having an established date.

See 2.1.2 Application of Foreign Laws, 2.6.5 Domestic Courts’ Approach to Foreign Laws and Judgments, 2.7.2 Assignment/Novation of Leases Under Foreign Laws and 3.2.6 Choice of Foreign Law.

See 2.6.6 Domestic Courts’ Recognition of Foreign Judgments/Awards.

See 2.6.2 Lessor Taking Possession of the Aircraft, 2.8.2 Lessee’s/Operator’s Consent, and 2.8.11 Owner’s/Lessor’s Consent.

See 2.6.3 Specific Courts for Aviation Disputes.

See 2.6.4 Summary Judgment or Other Relief. There are no bonds, security or cash deposits that would be required.

See 2.6.7 Judgments in Foreign Currencies.

See 2.6.9 Lessor’s Requirement to Pay Taxes/Fees.

The judicial process needs to be more dynamic to accommodate and cope with the fast changes in the industry to encourage more lenders and lessors to invest in Egypt.